You know the old saying about not putting all your eggs in one basket. It was never truer than when applied to savings. Let’s say your retirement savings are invested in a single stock. Or, let’s say you’re participating in your employer’s plan, but you’ve got everything in three types of bond funds. Too much risk, my friend. Here’s why. When that single stock drops, all your money follows. Or, when the bond market turns, so goes your investment.

This means that, even if you’re saving in your employer’s plan … and contributing as much as you can … you may get tripped up if you are not diversified. Diversification means having some money in lots of different investments. Thus, when one part of the market is performing well, you could benefit. At the same time you can offset losses in your investments that may be underperforming at the moment. Diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets.